March 5, 2008

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Summary Prepared at the Federal Reserve Bank of Boston and based on information collected on or before
February 25, 2008. This document summarizes comments received from business and other contacts
outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
New York
Philadelphia Reports from the twelve Federal Reserve Districts suggest that economic growth has slowed
Cleveland since the beginning of the year. Two-thirds of the Districts cited softening or weakening in the
pace of business activity, while the others referred to subdued, slow, or modest growth. Retail
Chicago activity in most Districts was reported to be weak or softening, although tourism generally
St. Louis continued to expand. Services industries in many Districts, including staffing services in
Minneapolis Boston, port activity in New York, and truck freight volume in Cleveland, appeared to be
Kansas City slowing, but activity in services provided some positive news in Richmond and Dallas.
Manufacturing was said to be sluggish or to have slowed in about half the Districts, while
San Francisco
several others indicated manufacturing results were mixed or trends were steady.
Full report
Residential real estate markets generally remained weak; reports on commercial real estate
markets were somewhat mixed, but also suggest slowing, on balance, in many Districts. Most
Districts reporting on banking cite tight or tightening credit standards and stable or weaker
loan demand. Districts reporting on the agriculture and energy sectors said activity is
generally strong.

Upward pressure on prices from rising materials and energy prices was noted in almost all the
District reports, but Philadelphia said increases in input costs and output prices had recently
become less prevalent, and San Francisco indicated pressures were limited for products other
than food and energy. By contrast, wage and salary pressures were generally said to be
modest, as the hiring pace slowed in various sectors and labor markets loosened somewhat in
many Districts.

Consumer Spending and Tourism
Reports on retail spending were generally downbeat, although Boston, St. Louis, and Dallas
described sales as mixed and Kansas City reported that consumer spending was "largely
unchanged" since the previous survey period. The majority of Districts characterized sales as
below plan, downbeat, weak, or having softened. Among product categories, apparel sales
were soft in New York, Philadelphia, and Richmond, but strong in Boston. Several Districts
noted declines in sales of big-ticket and/or home-related items.
Districts commenting on vehicle sales described them as slow or sluggish, with little
exception. Contacts in Dallas attributed an uptick in auto sales to increased advertising and
incentives. Chicago dealerships reported some increases in used car sales in February. Dealers
in the Philadelphia District expected sales to increase later in the year, but Cleveland did not
expect significant change in the upcoming months.

The majority of reports on tourism were positive, on balance, although most Districts
mentioned some areas of softening. The San Francisco District commented that while tourism
in Hawaii had fallen from previous levels, activity in California remained stable, partly
because of growing foreign travel resulting from the lower exchange value of the U.S. dollar.
Minneapolis reported an increase in tourism activity generally relating to winter sports.
Tourism and travel in Kansas City, Atlanta, New York, and Chicago were also mostly

Nonfinancial Services
Reports from nonfinancial services industries were mixed. Health-care services expanded in
the Richmond, Minneapolis, and San Francisco Districts, while contacts in the St. Louis
District reported a softening and plans to lay off workers. Software and IT services
respondents in Boston reported modest growth.

Available reports from staffing firms pointed to mixed demand for temporary labor. The
Boston, New York, Richmond, and Atlanta Districts reported weaker staffing requests relative
to a year ago; Cleveland, Chicago, and Dallas reported stable to increased demand. Boston
noted increased demand from the biopharmaceutical and aerospace industries, while Dallas
contacts saw an increased demand for temporary workers in IT, engineering, and oil-related
services. A large New York employment agency found that despite widely announced layoff
plans at financial firms, they saw no noticeable increase in the number of job candidates.
Boston and Atlanta noted improved labor supply.

All Districts reporting on transportation services noted weaker activity in the first quarter of
2008 compared with the previous quarter. Trucking and shipping respondents from the
Richmond and Dallas Districts reported declining import volumes, which more than offset
growth in exports, stimulated by the depreciation of the dollar. However, airlines in those
Districts reported higher passenger volumes since the start of the year.

Reports on the manufacturing sector were mixed but, on the whole, subdued. New York,
Philadelphia, Richmond, Kansas City, and Dallas indicated that production or shipments were
sluggish or falling. Atlanta, Minneapolis, and San Francisco characterized activity as varying
across industries. Boston, Cleveland, and Chicago indicated stable levels or trends. Only St.
Louis noted a strengthening relative to prior reports.

Various Districts cited strong demand for steel, aircraft and parts, energy-related equipment,
and exports, but mostly continued weak markets for products and equipment used for
building and furnishing homes. Atlanta, Chicago, and Dallas indicated that automotive
production and sales have been light or declining. On the other hand, the Cleveland District
saw an uptick in the production of foreign nameplates during January, and St. Louis was
anticipating additional capacity and employment in automotive parts manufacturing. Dallas
reported that refining production fell in the face of weak margins. Reports on food processing
were mixed, with some Districts indicating that high prices were constraining demand, while
others cited rising demand. Boston and New York mentioned that some manufacturers are
experiencing slower payments from their customers.

All Districts commenting on the near-term outlook mentioned caution or concern on the part
of at least some segments of manufacturing. Boston, Philadelphia, Kansas City, and San
Francisco indicated that some firms are adjusting their hiring or capital spending plans
downward. A couple of Districts mentioned risks associated with financing constraints. For
example, Chicago cited concerns on the part of the auto industry that tight credit would cause
its customers to become more price-sensitive and less able to obtain car loans.

Real Estate and Construction
Residential real estate markets were generally weak over the last couple of months. Sales
were low in every District with very few local exceptions. Sales declines were particularly
large in the Boston, Minneapolis, Richmond, and St. Louis Districts; at least some
respondents in each of these Districts reported drops in home sales of more than 20 percent
year-over-year. Contacts in the Chicago, Kansas City, and Philadelphia Districts cited tight
credit conditions as a reason for low sales; each of those Districts either reported or expected
stabilization of demand for homes in the low and mid-price ranges.

Districts that reported home prices all saw overall declines; one exception was the Manhattan
co-op and condo market, where prices increased 5 percent compared with a year ago.
Inventories remained high as demand was still fairly low. A few contacts in the Chicago,
Cleveland, and Richmond Districts reported an increase in inquiries, although this increase in
traffic had not yet translated into increased sales. Residential construction declined or
remained at low levels in most Districts.

The markets for office and retail space showed signs of a slowdown in several Districts.
Office vacancies were reported up, and leasing volumes down, in Manhattan, Baltimore,
Washington, D.C., Memphis, portions of Maine and Rhode Island, and Las Vegas. Districts
indicated that office vacancies held steady in Boston and the Carolinas, and were down in
Philadelphia and in the Minneapolis and St. Louis Districts; however, contacts in the Boston
and Philadelphia Districts and see some emerging slack. Office rents were mixed, however,
coming in about flat in greater Boston and Manhattan, either flat or down in the Richmond
District, and up in Philadelphia. Retail vacancy was reported up in the Minneapolis District
and retail space demand was described as slow in the Chicago District. Demand for industrial
space was described as either "firm" or "flat" in the Districts commenting on that sector.

Sales activity in nonresidential markets was down in the Boston, Dallas, Kansas City, and
Chicago Districts, with contacts citing tight credit conditions as a major factor. Office sales
activity remained strong, however, in the major cities of the New York District and in the San
Francisco District. Eight of the twelve Districts reported that nonresidential construction
activity was slow; countering these reports, the Cleveland, Dallas, and San Francisco Districts
indicated that construction remained strong.

Banking and Finance
Reports on loan demand for commercial, industrial, and residential mortgage loans varied
across Districts. Overall loan demand was flat in San Francisco and weakened in the Kansas
City, St. Louis, Dallas, New York, and Richmond Districts. Consumer lending was flat or
declining in the St. Louis, Chicago, and Cleveland Districts. Commercial and industrial loan
demand was mixed in San Francisco and remained stable or declined in the Kansas City, St.
Louis, Dallas, New York, and Richmond Districts. By contrast, the Chicago and Cleveland
Districts reported increased business lending. Even as loan demand for new residential
mortgages remained sluggish or declined, lower interest rates prompted increases in
refinancing of existing mortgages in a number of Districts, including San Francisco, St.
Louis, New York, Richmond, Atlanta, Cleveland, and Chicago. Cleveland cited a small rise in
delinquencies, especially for real estate loans, and Atlanta reported an increase in mortgage
delinquencies and foreclosures. New York, on the other hand, saw a rise in delinquencies for
all loan categories except residential mortgages, which were unchanged. Tight credit
standards were reported in the Atlanta, San Francisco, Kansas City, St. Louis, Chicago,
Dallas, Richmond, and New York Districts. Kansas City indicated a worsening of overall loan
quality, Chicago reported a deterioration of consumer loan quality, and Cleveland also saw a
decline in credit quality for business customers and consumers. By contrast, Dallas reported
sound credit quality.

Agriculture and Natural Resources
The Chicago, San Francisco, Minneapolis, St. Louis, and Dallas Districts reported strong
conditions in the agriculture sector, including high prices for winter wheat, corn, soybeans,
sorghum, and hogs, and increased production of some crops. By contrast, Atlanta and
Richmond indicated that although recent rain had improved conditions in Maryland and
Virginia, drought conditions persisted in other areas, and range pasture conditions remained
poor. Farm incomes and/or value of production rose in several Districts during 2007, although
Kentucky farmers saw no change and Tennessee farmers saw declines compared to 2006.
Increases in input costs, including prices of fuel, fertilizer, and feed were mentioned by
Chicago, Minneapolis, and San Francisco as potentially affecting future production and
incomes; Chicago and Dallas also cited recent weather-related problems that threaten
production this spring. Increases in the value of farmland were reported by Chicago and

All Districts reporting on energy cited robust levels of activity and steady or higher prices; in
addition, Kansas City and Cleveland mentioned increases in hiring. However, Dallas noted
that drilling had flattened domestically and declined in the Gulf of Mexico, leaving activity
outside of North America to drive future growth, while Kansas City, Cleveland, and
Minneapolis expected exploration and capital spending to increase going forward. Rates for
durable equipment, and drilling and evaluation services were reported to be flat to declining.
However, price pressures, regulatory costs, and tightening credit were mentioned as providing
possible future impediments to increased production.

Prices and Wages
Business contacts in many Districts cited price pressures from vendors and mixed success in
raising their own prices to recoup the increased costs. Manufacturing contacts in the
Richmond, Atlanta, Chicago, Cleveland, Minneapolis, Kansas City, and Dallas Districts
pointed to rising costs for raw materials or other inputs, while manufacturing firms in the
New York District reported more widespread increases in prices paid "than in well over a
year." By contrast, Philadelphia noted somewhat less prevalent increases in input costs and
output prices in February than in January, except for increased mention of rising prices for
imported goods. Upward pressures on input costs from high or rising energy prices were
frequently cited, which also translated into increased transportation and shipping costs. Price
increases for metals, petrochemicals, and food were also mentioned often. The San Francisco
District, however, indicated that price pressures were limited except for food and energy.
Firms' ability to pass along cost increases by raising selling prices varied. The Boston District
noted that retail contacts were passing some price increases on to customers, and some
manufacturers were raising selling prices to partially offset rising costs; half the
manufacturers contacted in the Cleveland District had raised prices or added surcharges since
the previous report. The Dallas and Atlanta Districts reported that some firms raised prices
but others were constrained by competitive pressures; Chicago indicated that contacts outside
of construction and retail were passing cost increases along to customers. In the Kansas City
District, factory goods' prices had escalated, but retail prices were mostly stable.

Most Districts indicated that contacted businesses reported limited wage pressures, moderate
wage increases, and some loosening of labor markets. While Atlanta, Boston, Chicago, and
San Francisco noted short supplies of selected types of skilled labor relative to demand, they
and the New York, Richmond, Kansas City, and Dallas Districts cited pullbacks in the pace of
hiring by some firms. Furthermore, several Districts, including New York, Philadelphia, St.
Louis, and Atlanta, reported increased prevalence of layoffs, reductions in work hours, or
hiring freezes.